Please show the calculations for the answer provided in the excel sheet (i.e how are formulas sued and how are the steps followed).

Problem 3 Caterpillar Caterpillar (U.S.) just purchased a Korean company that produces plastic nuts and bolts for heavy equipment. The purchase price was Won7,030 million. Won1,000 million has already been paid, and the remaining Won6,030 million is due in six months. The current spot rate is Won1200/$, and the 6-month forward rate is Won1260/$. Caterpillar can invest at the rates given below, or borrow at 2% per annum above these rate. Caterpillar's weighted average cost of capital is 10%. As you compare 1) no hedge; 2) forward hedge; 3) money market hedge; 4) option hedge, assume the spot rate 6 mo from now turns out to be what Caterpillar expects. Assumptions Purchase price of Korean manufacturer, in Korean won Less initial payment, in Korean won Net settlement needed, in Korean won, in six months Current spot rate (Won/S) Six month forward rate (Won/S) Caterpillar's expectation of spot rate 6 mo from now Caterpillar cost of capital (WACC) Values 7,030,000,000 (1,000,000,000) 6,030,000,000 1,200 1,260 1,300 10.00% Put Option Options on Korean won: Strike price (won/S) Option premium (percent) Call Option 1,200.00 3.000% 1,200.00 2.400% Investment (not borrowing) interest rate Borrowing premium of 2.000% Borrowing rate United States 4.000% 2.000% 6.000% Korea 16.000% 2.000% 18.000% Risk Management Alternatives Values Certainty 1. Remain uncovered, making the won payment in 6 months at the spot rate in effect at that date Account payable (won) Spot rate in six months Cost of settlement in six months (USS) 6,030,000,000 1,300 4,638,461.54 s 2. Forward market hedge. Buy won forward six months Account payable (won) Forward rate (won/S) Cost of settlement in six months (USS) 6,030,000,000 1,260.00 4,785,714.29 3. Money market hedge. Exchange dollars for won now, invest for six months. F Account payable (won) Need to discount for 6 months Won needed now (payable/discount factor) Current spot rate (won/S) US dollars needed now Carry forward rate for six months (WACC) US dollar cost, in six months, of settlement 6,030,000,000 1.080 5,583,333,333.33 1,200.00 4,652,777.78 1.050 4,885,416.67 S S 4. Call option hedge: buy call on won (long-call on won) Option principal Current spot rate (won/S) Premium cost of option (%) Option premium (principal/spot rate x % pm) 6,030,000,000 1,200.00 3.000% 150,750.00 S because spot p. (won value)